A special edition of the Entrepreneurs’ Hangout held on Saturday, May 2nd 2020. The discussion was led by David Boakye-Danquah, Founder and Chief Executive Officer, Global Village Advisors LLC on How to build for capital injection even in a downturn economy.
He laid the foundation for conversations by first appreciating the innovation behind this “Entrepreneurs’ Lounge” as he called it celebrating its efforts to offer the best possible advice to its members to be properly positioned in this season and beyond. He explained the economic cycle stages being expansion, peak, contraction, and trough.
An expansion is considered a time of increasing employment rate, economic growth, and upward pressure on prices. A peak is the highest point of the business cycle when the economy turns out at maximum allowable output- employment is at its peak and inflationary pressures on prices are evident. Then, the contraction, a correction stage where growth slows, employment declines (unemployment increases), and pricing pressures subside. The slowing ceases at the trough and at this point the economy has hit a bottom from which the next stage of expansion and contraction will emerge.
He also stressed the importance of documentation and proper financial management in preparing for capital injection and also that businesses should increase their offerings, especially in this season to be more attractive to investors.
Key highlights of the discussions include:
· Ensuring due diligence in documentation is the basic preparation for any business to receive investment
· Investors like to receive background checks on the character of the individuals running the businesses they wish to invest- at all cost, avoid any reputational risks
· The most important factor to determine opportunities to pivot into is the cash conversion cycle (how long will it take to get returns on investment)
· There is never a second opportunity to make a first impression. So, ensure that all documentations are put in place before engaging with investors
· Investors always want to get a good understanding of how businesses are operated and employee satisfaction. Hence, providing the HR policy is essential
· No information is too much to provide an investor. This ensures most questions are already provided for even without asking.
Questions and Answers:
Lead Discussant: David Boakye-Danquah, Founder and Chief Executive Officer, Global Village Advisors LLC
Question: What, in your opinion, is of utmost necessity a business needs to attract the right investors?
Answer: CHARACTER. While ensuring due diligence in documentation and financials is important, most investors receive reports of background checks on the individuals running the business. The other essentials if not properly attended to will only impact the company’s valuation.
Question: In a case where a debt facility was already applied for before the pandemic, what do you advise- proceed with the process and receive or wait post-COVID?
Answer: The primary source of repayment and economic impact should be considered to determine this. If the primary source of repayment business or other secondary sources can raise enough money for repayment even post-COVID are negatively affected by the pandemic, it is advisable not to.
Question: One of the reasons for liquidity is being able to access opportunities when they arise. In deciding other opportunities to provide value, what are the most important criteria to look out for in diversifying especially in this pandemic?
Answer: Cash conversion cycle (how long it will take to get back returns on the investment made) even if it is at a low margin.
Question: Piggybacking off the previous question, what opportunities do you think can be invested in at this time- pandemic?
Answer: Consumables, basic essentials right now- food, personal protective equipment etc. These would ensure a quick return on investment. However, noting that the pandemic has an expiration date, only persons who have been in the sector prior would benefit maximally from it.
Question: What will you say is the wisest form of investment in the Real estate sector at this time?
Answer: We must understand that the Real Estate industry is one that flows with the state of the economy per time and environment. Studying the trend in Nigeria should be able to give proper information on where to focus all investments. For Ghana, there is an excess of luxury housing and many of the residents are not interested in these. At a time like this and beyond, investments in more affordable housing.
Question: How crucial is documentation to attracting investors?
Answer: Have the mindset that you are setting up the business that would one day be valued enough to sell (this does not have to be the end goal). This mentality should help you focus on the right documentation. It is understandable that startups may not have the resources to have recognized forms audit records, still to ensure that affordable ones are on hand to do so till able to bring on board reputable ones. Investors lookout for reputable firms auditing records. Improper documentation or not having the appropriate papers may disqualify the business.
Question: You mentioned that improper documentation may disqualify businesses. What are the chances that transactions where these issues arise will be revisited?
Answer: It largely depends on the investor- some prefer to go through the entire process together because they understand the limitations especially with businesses in Africa while some are not so flexible and only want to see the ready details of the businesses for investment. Entrepreneurs need to understand that competition with other businesses are high and there is never a second opportunity to make a first impression so ensuring all details are prepared before engaging with investors.
Question: As noted, documentation and record-keeping are the most crucial. From an HR perspective, what are the minimum required documents?
Answer: Investors are always trying to get a good understanding of how the business of interest is operated, managed and employee treatment. This can only be gleaned from the HR policy of the organization. Information when pitching is never too much- it reduces the number of questions or concerns to be raised because most information requested is already provided.